New York cannabis regulators Thursday celebrated the reclassification of marijuana to a less restrictive federal drug class because it could lead to lower taxes for business owners — but other licensees fear the change could deepen ongoing issues in the state’s troubled market.

President Donald Trump signed an executive order Thursday afternoon directing the U.S. attorney general to expedite the process to consider marijuana a less harsh drug and officially move it from its Schedule I drug classification to Schedule III under the U.S. Drug Enforcement Administration. Schedule III can be used safely and are accepted medical use.

“This is a really important step forward in the federal government technology in that, not only does cannabis have really important therapeutic potential applications, it has also built a multi-billion dollar industry that should be recognized and integrated into the national economy,” state Office of Cannabis Management director of policy John Kagia told Spectrum News 1.

Kagia said downgrading marijuana to a less restrictive drug class could save cannabis businesses between 30 and 75% in federal taxes.

Current federal law prohibits businesses that sell Schedule I or II-level controlled substances from deducting ordinary business costs on their federal tax returns. Thursday’s change in national drug policy could change that.

“This could translate to hundreds of thousands of dollars less that these businesses are paying to the federal government, which means more money for reinvestment, more profitability for these businesses, and indeed it makes our industry much more attractive for investors,” Kagia said after a Cannabis Control Board meeting in Albany.

The board held its last meeting of the year Thursday as Trump signed the executive order.

OCM’s new acting executive director Susan Filburn gave remarks at the meeting — speaking publicly in her role for the first time.

“Through this leadership transition, my priority is to provide stability, clarity and support so our team can continue to excel,” she said. 

Filburn declined to be interviewed. Gov. Kathy Hochul chose Filburn to lead the state agency after firing former director Felicia A.B. Reid on Dec. 8. The governor will soon start a search for a permanent replacement.

Kagia said Trump’s decision to reclassify marijuana will unleash critical capital in the state’s market.

New York cannabis businesses — especially in the city and greater metropolitan area — pay some of the highest rents and operating costs in the country. And reduced costs for businesses will make the legal market more competitive against illicit sales that continue to thrive, and trafficked products coming from other states.

“It’s going to be a real catalyst for growth for New York’s industry,” Kagia said.

But some cannabis licensees are concerned what the federal changes could mean for the two dozen states that have already legalized recreational marijuana for adults.

Cannabis grower Zach Sarkis, director of operations at G-Flower in the Finger Lakes, said New York must prepare to protect its own market amid the possible federal rescheduling.

“How are we protecting the craft industry?” asked Sarkis, who is the president of the New York Craft Association. “How are we protecting the cottage industry, carving out whether it be tax structures, whether it be incubators, business support services?

“At this point, it’s winner take all, and the big players are waiting for this kind of movement so they can come take over the New York market,” he added.

Sarkis also addressed board members about concerns with the launch of OCM’s delayed digital tracking system. The long-awaited Seed to Sale system started launching in phases Wednesday.

But the system could be forced to be put on hold for all licensees depending on the outcome of a state Supreme Court hearing scheduled for 11 a.m. Friday in Albany.

This summer, the company METRC took over the Seed to Sale system that follows products from planting to harvest, through testing and the final sale. But the company changed the required timeline and structure of a tagged ID mandated for each product. The tags cost 10 cents each.    

Operators sued the state over METRC’s fee schedule and other details of the contract they argue were implemented too quickly, and without a public comment period, which violates state law.

Sarkis had to request more time to put all products into the system, and said licensees lack resources, and can’t afford the extra cost for ID tags, for the system to be effective.

“We want track and trace — we’re all for this level of transparency,” Sarkis said. “We know the big bad actors who have been really abusing the import into the New York state market will have to change their maneuvers based on this level of insight. However, the requests and requirements of new increased costs and fees and timeline is just inconsiderate given all the pressures that these small businesses are facing.”

Members of the Cannabis Control Board discussed the litigation in executive session for about 30 minutes at the start of today’s meeting.

Last week, Hochul vetoed a bill that would have allowed cannabis retailers to electronically file cannabis excise tax payments annually, instead of quarterly, with the state Department of Taxation and Finance. 

The veto disappointed lawmakers, who said the change was needed to reduce the administrative burden on businesses. But sponsors said they 

“Unfortunately, the system as currently designed puts New York’s cannabis producers at a disadvantage,” Assembly sponsor Donna Lupardo said in a statement. “They have to pay taxes on goods that have not yet been sold or paid for by retail dispensaries. We will consult with the industry to see if revisiting this issue remains one of their priorities for the coming year.”